In response to the credit market instability, the Treasury Department will make available certain funds from its Exchange Stabilization Fund, on a temporary basis, to enable money market funds to insure the amount of assets held in publicly offered money market mutual funds to maintain a stable $1.00 per share net asset value. This program will be voluntary and is a temporary program to last no more than one year (after one year, it will be evaluated to determine if an extension is warranted).

"This Notice provides administrative relief in furtherance of public policy to promote stability in the market for money market funds," the IRS wrote. "Except with respect to the administrative relief expressly provided in this Notice, no inference should be drawn from this Notice regarding any other federal tax issues affecting tax-exempt bonds, money market funds, or any other security."

Premiums for participating money market mutual funds will be assessed against the mutual fund and we understand that most, if not all, investment companies maintaining these funds are planning to participate. The amount insured will not be capped like FDIC insurance. Once a participating fund board determines the fund has "broken a buck" and decides to liquidate, any shortfall would be covered by the Treasury. The SEC has been given the responsibility of developing this program.

It is important to note that new money that comes into these funds after close of business on September 19, 2008, will NOT be covered by this program. Though details are still being worked on, it appears intermediaries and recordkeepers will find it necessary to keep data on money market mutual fund account values as of the close of business on September 19, 2008, in order to be in a position to properly allocate recoupment of Treasury insured amounts, if subsequently necessary.

For further information, please contact Jim Bartoszewicz, Executive Vice President, Cowden Advisers, Inc. Defined Contribution & Investment Advisory Services. Jim can be reached at 412-208-0481 or toll-free at 888-889-9432.
The IRS Notice is available here.

On August 22, 2008 The U. S. Department of Labor (DOL) released proposed regulations in the Federal Register, that if adopted make investment advice more accessible for millions of Americans in 401(k) type plans and individual retirement accounts (IRAs).

“These proposals would give workers greater access to investment advice so that they are better equipped to manage and monitor their 401(k) plans and Individual Retirement Accounts,” said U.S. Secretary of Labor Elaine L. Chao.

The Pension Protection Act of 2006 amended the Employee Retirement Income Security Act (ERISA) by adding a new prohibited transaction exemption that allows greater flexibility for participants of 401(k) plans and IRAs to obtain investment advice. One of the ways in which investment advice may be given under the exemption is through the use of a computer model certified as unbiased, the other is through an adviser compensated on a “level-fee” basis.

Several other requirements also must be satisfied, including disclosure of fees the adviser is to receive.

In December 2006, the department solicited public comments to determine what expertise and procedures may be needed to certify a computer model under the exemption, and to assist in developing a model form for the exemption’s disclosure of adviser fees.

The proposed regulation provides general guidance on the exemption’s requirements, including computer model certification, and includes a non-mandatory model form that advisers may use to satisfy the exemption’s fee disclosure requirement. In addition, to further the availability of quality and professional investment advice, the department is proposing a class exemption that permits advisors to provide individualized advice to a worker after giving advice generated by use of a computer model.

Separately, the department also released its determination relating to the feasibility of using computer models for providing investment advice to participants of IRAs.

For further information, please contact Jere Cowden, President and CEO, or Jim Bartoszewicz, Executive Vice President, Cowden Advisers, Inc., Defined Contribution & Investment Advisory Services. They can be reached at 412-394-9330 or toll-free at 888-889-9432. Full Proposed Regulations can also be found at the DOL website.